Jason Brady avoided 10-year Treasury notes as yields fell to all-time lows and a soaring stock market slowly sapped demand for government debt. No more.

Even though the Federal Reserve is cutting the amount of bonds it buys as the economy improves, the managing director at Santa Fe, New Mexico-based Thornburg Investment Management, which oversees $95 billion, said he recently scooped up the securities as yields approached a two-year high of 3 percent.

“With exuberance around risk assets that we saw toward the end of last year, which had every single strategist deciding that stocks were the best thing in the world and bonds were the worst thing in the world and that rates were certainly going higher and anybody who was otherwise is crazy -- that started to be a little much,” Brady said in a Jan. 28 telephone interview.

A growing number of investors are thinking the same thing. The performance of Treasuries is confounding forecasters who predicted a second consecutive year of losses with their best annual start since 2008, returning 1.6 percent in January as measured by Bank of America Merrill Lynch index data. Sluggish employment growth, emerging-market turmoil triggered in part by the Fed’s reductions in monetary stimulus and a shrinking supply of U.S. debt -- thanks to a smaller budget deficit -- has investors re-evaluating forecasts for higher yields.

Gundlach’s Bullish

The market was “entering 2014 struck by a greater consensus entering any year that I can remember, that the dollar has to do well, gold is for losers and bond yields will rise,” Jeffrey Gundlach, chief executive officer of DoubleLine Capital LP, which manages $49 billion, said in a telephone interview from Los Angeles on Jan. 28. “Things were so lopsided in terms of that positioning. That was late in that way of thinking.”

The amount of bets against 10-year Treasuries by hedge- funds and other large speculators shrunk to as low as 58,000 contracts last month from a 19-month high of about 189,000 in November, data from the Commodities Futures Trading Association in Washington show.

Gundlach predicts yields will fall in 2014, with demand rising from investors such as banks seeking high-quality collateral to meet new regulatory requirements and as a haven for others from political and economic turbulence in nations ranging from Turkey to Argentina. Gundlach outlined his views for investors in a conference call Jan. 14.

Falling Yields

Treasury 10-year yields dropped to 2.64 percent on Jan. 31 from 3.03 percent at the end of 2013, in the biggest one-month decline since August 2011. That’s when markets were thrown into disarray as Standard & Poor’s stripped the U.S. of its AAA credit rating, prompting investors to seek a haven in Treasuries.